WHAT A LOVELY CRISIS

by Ralph Holland

Competition will inject new life into the business property market

The "monster munch," as Londoners call the current credit crunch, in my view is running out steam. Everyone is growing tired of the pundits.

The real crisis started in August 2007, but times have been changing since. Yes, it was a real crisis, and yes, many global banks were fatally wounded, including some of the most venerable names in modern banking.

Here in Bulgaria, particularly in the real estate business, pricing and value are a tough call in the medium to long term. Are we somehow insulated from fluctuations in the global economy? Are we emerging from such a low baseline that the express train of property development in both the retail and office sectors will continue to move slowly, rather than rocket forward, even in the face of gloom and doom in major western markets?

Yes and no.

However, I am upbeat. The baseline is very low. Bulgaria still has one of the lowest per capita amounts of square metres of modern shopping space in Europe, at just 22 sq m per 1,000 inhabitants. By comparison, for example, Norway, boasts 500 sq m per 1,000, while the EU average is 200 sq m. Even Romania has 50. Retailers are starved of space, shoppers of choice; more brands want to enter our market, and are queuing up to do so this year. The leading Spanish retailer Inditex's main brands will be available soon. Zara is on its way and will be welcomed by Bulgarian consumers.

Developers of shopping malls know all this. In spite of stricter credit covenants for projects, the wise ones will hold out and the silly schemes will remain on paper. That's life, but it is also healthy for the market.

It is also true that the main business location in the country, Sofia, is undersupplied with honest, no-nonsense office space – by that I mean the technical specifications that global corporate consumers expect and demand from what is usually their second biggest expense after staff costs.

The tenants will become more sophisticated and internationalised. International decisionmakers in corporate real estate departments expect flexible floorspace and buildings that work – with air conditioning for starters – good management and especially value for the service charge, the latter not just a nod to the environment, but as a requirement for business premises that meet internationally recognised environmental standards.

There is real depth to the market for business occupancy in Sofia and a long list of truly global companies that all benefit from Bulgaria's very low tax regime and affordable and highly educated workforce. I am consistently impressed by the younger generation of Bulgarian business talent.

Many of these corporations are unhappy in their current premises and most are on short term, breakable leases.
As the pipeline bringing all this new business into Sofia arrives towards the end of the year, corporations as consumers will have choice. There will be a "move to quality" as older office blocks need to compete with developments with up-to-the-minute specifications. Premises with lower specs and poorer locations will undoubtedly suffer.

The age old mantra is "location, location, location." That is true for Sofia, and the main business district will shift in the next 18 months to the airport corridor, close to the new international terminal and along the main road into town.
Tishman International's Sofia Airport Center will provide the anchor point for the move. In my view, all this will inspire businesses by offering them greater flexibility and quality when it comes to choosing premises.

Consumers love choice, and the market should welcome competition. Corporations do move around and will continue to do so. Unfortunately, this will be of no comfort to monopolistic landlords as the market becomes more competitive.

Bulgaria's commercial property market should welcome competition; it is the cornerstone of free markets and, though a cliché, has the effect of raising standards. I not only expect, but welcome, more competition in my field. The marketplace in which I operate is becoming more international, and that is where it needs to be.

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